Thursday 09/20/12

The December live cattle contract has been a while ride in 2012. The week of February 27 the contract posted its high of $135.55 before falling to its low of $122.00 the week of April 23. Since then the live cattle has seen wild price swings, though the general trend has been up. However, as the weekly chart shows, this trend could soon look to turn down.

Source: DTN ProphetX

Last week's move in live cattle saw the December contract post a high of $131.325, a price that tested the 67% retracement level of the previous downtrend from the February high through the April low, before closing back below the 61.8% retracement level of $130.375. While higher for the week, it still constituted a bearish weekly close. This week has seen follow-through selling emerge, establishing a bearish crossover in weekly stochastics (bottom study) and taking the December contract back to support near $127.75, the 38.2% retracement of the rally from April through last week's high.

Fundamentally the December contract remains bearish, as indicated by its spread with the February 2013 contract (not shown). Thursday morning sees the December at a $3.50 discount to the February, well below the five-year low of a $2.88 discount. This would indicate that the December contract could see continued pressure, resulting in a test support between $126.65 and $125.55, prices that reflect the 50% and 61.8% retracement levels of the previous uptrend.